Ongoing debate on levy charge methods

There is an ongoing debate in the sectional title industry whether levy contributions should be worked out upfront, i.e. a set cost, or whether it should be the participation quota method, which is according to the floor space of the unit inhabited, says Michael Bauer, general manager of IHFM, the property management company.

Many ask whether the PQ factor is actually fair or whether levies should be charged per service or per owner. There are certain items in a building that could be charged per unit but costs such as insurance, for instance, have to be on a value of the unit. If you had to insure a one bedroom, one bathroom unit, it will cost a lot less than the three bedroom two bathroom penthouse in the same building, said Bauer.

The benefit of uniformity (where everyone pays the same amount), is that there are no debates as to what is paid and everyone knows upfront that it is a certain cost split equally among owners.

“Fairness, in my view, is in knowing upfront what you will be paying each month,’ said Bauer. “Whichever method is chosen, however, should be consistent.”

In South Africa the Sectional Titles Act rules that the participation quota method is used to determine levies, but it does make allowance for changes, under section 32 (4), in the way the quota is worked out.

If owners do want the way levies are worked out to be changed, the body corporate must determine whether there is a fairer way of determining the levies and then before implementing the new payment system it must have a special resolution, the written consent of all the owners and have the new rule filed with the Registrar of Deeds.

Only after this is done can the levy amounts or quotas be changed to the new system proposed, said Bauer.

“The PQ way of working out levies is usually the most objective and the fairest. If the standards and rules are set upfront it is better for the management of the scheme and consistency in the collection of monies due.”